Page 85 - Budgeting for Managers

Budgeting for Managers
68
Units to be produced
1.25
Labor time per unit (hours)
68,750
Total direct labor budget (hours) 55,000
Direct labor costs per hour $15.00
Total direct labor cost $1,031,250
Table 4-3. Direct labor costs
actual cost per hour of our staff is greater than the hourly pay
rate. We must allow for Social Security, medical, and other ben-
efits. If the staff budget is under your control or if you want to
know more about expenses for human resources, turn to
Chapter 10. You also need
to consider the difference
Direct labor Labor used
directly in the production between the time spent in
of finished goods, which is actual production and the
counted in the cost of goods sold. time you pay them for,
Direct labor is calculated as a variable including non-production
cost of manufacturing: the more we activities, vacations, and
produce, the more labor we need.
holidays, as discussed in
Indirect labor Labor that is not Chapter 3.
directly tied to manufacturing costs,
such as supervisors and administra- Calculating Overhead
tive staff. It may be counted in the Not all costs of production
cost of goods sold or it may be an
are directly tied to each
expense item.
item produced. Some
items are part of your cost
of operations—overhead. Costs that are the same whatever the
quantity of finished goods you produce are fixed overhead.
Costs that vary with the quantity of finished goods you produce
are variable overhead. This includes the cost of packing materi-
als and of receiving, shipping, and storing parts. Table 4-4
shows how to account for overhead in your budget.